POST Brexit, there are likely to be severe confidence effects on spending and business investment, resulting in anaemic growth for at least the next three years, according to the EY ITEM Club summer forecast.
The fall in the pound should cushion the economy against some of the adverse effects of uncertainty by boosting UK exports.
By the end of the year the Club expects sterling’s trade-weighted value to be 15 per cent down on the level in Q4 2015. However, this will not be enough to prevent a significant deterioration in the UK’s growth outlook, compared to predictions the Club made in April.
The Club is forecasting GDP growth of 1.9 per cent this year (down from the 2.3 per cent it predicted in April) and expects growth of just 0.4 per cent in 2017 (down from 2.6 per cent) and 1.4 per cent in 2018 (down from 2.4 per cent).
Business investment is expected to see a larger relative hit, falling by 0.9 per cent in 2016 and by two per cent in 2017 – down from April’s forecast of growth of 3.2 per cent and 7.8 per cent, respectively.
The Club believes that the longer-term outlook for the economy will be determined both by domestic policies in areas like regulation and migration and by the UK’s ability to secure trade deals with the EU and other markets.
The forecast assumes that post-2019 the UK will be able to negotiate a free trade agreement with the EU similar to the recent EU-Canada deal, which keeps trade between the UK and the EU free of tariffs.
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